Dixons Carphone has released a trading update for the first quarter of the 2016/17 financial year, representing the 13 weeks to the 30 July 2016. With both revenue and market share continuing to grow, the shares rose by 1.5% this morning.
At constant currency rates, group like-for-like revenue increased by 4%, with overall group sales also rising by 4%.
In the UK & Ireland, still Dixons Carphone's most important region, the group report no detectable impact of the Brexit vote on consumer behaviour. Like-for-like revenue rose 4%, with overall revenue up 3% as store closures continue. The 3-in-1 store integration program is progressing well.
Reported revenues in the Nordics and Southern Europe regions grew strongly, up 17% and 24% respectively, assisted by weaker Sterling. At local currency rates, the Nordic region grew revenue by 4%, with Southern Europe growing by 8%.
The Connected World Services division, which offers services to other electronics retailers, saw sales rise by 42% at local currency rates (45% when measured at Sterling rates). The Sprint rollout continues in the US, and the group now has 31 stores across 5 regions.
CEO Seb James, although acknowledging the challenges of today's increasingly discerning customers, remains optimistic about the group's future and their ability to outperform peers.
Despite unfavourable economic conditions in many of its core markets, Dixons Carphone is increasing its market share in key categories and like-for-like sales are heading in the right direction across the board.
With the number of internet-enabled devices per household set to rise, demand for what the group sells should grow. Following the closure of Phones4U and Comet, Dixons Carphone now stands alone as a large-scale UK electrical specialist with a bricks-and-mortar presence. Costs are being reduced too, as PC World, Currys and Carphone Warehouse stores are integrated into a 3-in-1 model.
The group is also expanding overseas, and the joint venture (JV) in the US with Sprint, a big American network, looks to be emulating the earlier success with Best Buy Mobile, another US joint venture that made big returns for Carphone Warehouse a few years ago.
With fewer competitors, the Sprint JV's potential and costs coming out, the group look well placed. Current expectations are for earnings per share to grow by almost 25% over the next three years.
However, the structural threat posed by online retailers like Amazon and eBay is a concern. The online players have cost advantages such as lower rent, staff and business rate burdens. Although this represents a significant challenge for the group, we feel that electronics is still an area where many customers need a helping hand, so the service and knowledge of their sales staff could yet be a trump card for the group.
At present, the shares trade on a forward PE of 12.2x, compared to a historic average of around 14.4x. The prospective yield is 2.8%, with payouts set to increase in the coming years.
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